WASHINGTON, March 24, 2015 — The World Bank’s Board of Executive Directors today approved a Euro 88.3 million (US$100 million equivalent) development policy loan to support Serbia’s structural reform agenda. This operation is the first of two budget support loans supporting the Government in reforming the state- and socially-owned enterprise (SOE) sector.
This first operation focuses on resolving the 514 commercial and socially-owned enterprises that are still in the hands of the Serbian Privatization Agency. These companies will be resolved through privatization and asset sales to interested investors, or through bankruptcy if they are no longer viable.
The SOEs in the portfolio of the Privatization Agency are holding back development of Serbia’s economy, and impose high fiscal costs to the country’s budget and to Serbian taxpayers. In 2013 alone, these 514 companies generated total losses of EUR 690 million, or over 2 percent of GDP. In addition, many of these enterprises are in arrears on taxes or social contributions, posing a further burden on the state.
SOEs also control valuable assets, such as land, real estate, and infrastructure, which are not used productively. A significant share of these enterprises enjoy special protection from creditors, which ultimately discourages foreign and domestic investors from investing in and turning these companies around.
“Serbia cannot afford to wait any longer for this reform. Unproductive state-owned enterprises are a serious drag on the Serbian economy and a large burden for taxpayers,” says Ellen Goldstein, World Bank Country Director for Southeast Europe. “Resolving these commercial enterprises will release public funds for better purposes, cut losses to the economy, and release productive resources into the private sector to stimulate entrepreneurship, innovation, and job creation for young workers.”
Specifically, the series of budget support loans will support implementation of the government’s priority reform program, first outlined in August 2014. This includes support for liquidation of 188 companies for which no investor interest was expressed, privatization through equity and asset sales of at least a further 206 companies, and the conclusion of investment partnerships for firms that are of strategic interest.
The loan also supports social measures to cushion the impact on SOE workers based on a new legal framework for severance packages that was approved in January 2015, as well as reforms in the National Employment Service to help strengthen its efforts to support redundant workers in finding new jobs.
“Government has made difficult decisions and taken SOE reform on as one of its top five priorities,” says Tony Verheijen, World Bank Country Manager in Serbia. “Along with enterprise restructuring, this includes important funding for severance payments, and strengthening of active labor market policies and programs to give affected workers opportunities for alternative employment.”
The absence of SOE reform for the past decade has caused Serbia to fall behind its neighbors in terms of economic transition, preventing the country from realizing its potential and from contributing to growth and job creation in recent years. Through this operation and a proposed follow-on operation, the World Bank Group demonstrates its strongest support for sustained implementation of the government’s long overdue structural reform program.